Eurozone always 'destined to fail'

Clancy Yeates

FORMER Treasury secretary Ken Henry says the eurozone is highly unlikely to survive - and he never believed the troubled currency union would work.

The top economic adviser to successive governments said it had become difficult for politicians to make people ''feel good'' by raising benefits, in contrast to the Howard government's challenge of how to spend the ''huge amount'' of mining boom revenue.

In a wide-ranging interview on ABC's 7.30 last night, Dr Henry revealed he had always held serious doubts about the eurozone, because it allowed countries to run budgets independently of each other.

Asked if he thought it was ''almost impossible'' for the eurozone to survive because of these flaws, Dr Henry said: ''Well, that is my view.''

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''Personally, I've never seen how the euro would work. I've never seen how it could be expected to work without a genuine fiscal union.''

Dr Henry's comments came amid growing fears that Greece might leave the eurozone and return to its previous currency, the drachma, if it cannot form an emergency government.

Greek politicians were holding last-ditch talks to form a government last night.

If they fail to form a coalition government soon, the country will have to hold elections next month, which could put an anti-austerity party in power.

With global markets on edge over the euro's future, Francois Hollande was last night due be sworn in as France's new President, before attending urgent meetings on the crisis with German Chancellor Angela Merkel.

The crisis dragged Australian shares to their lowest level in a month yesterday, with BHP Billiton shares hitting a three-year low on fears global growth will suffer.

Fears over the eurozone have taken a toll on the Australian dollar in recent days, with the currency dipping below $US1 on Monday for the first time since December.

However, Dr Henry said that if the ''worst thing happens'' in Europe, the dollar might actually climb because Australia was likely to be seen as a ''safe haven'' for global investors.

That was ''good news'' because it would allow Australia to finance its current account deficit, but it could cause further headaches for struggling exporters.

''It would mean a higher valued Australian dollar and that's an issue that's already causing some concern for some sectors of Australian business,'' Dr Henry said.

Dr Henry was the head of Treasury for 10 years, working under the Howard, Rudd and Gillard governments.

A key architect of Mr Rudd's ill-fated mining tax, Dr Henry would not be drawn on whether Australia had wasted the mining boom.

Today, he said, it was much harder for governments to make people ''feel good'' because this mining boom was raising less tax revenue.